SMT. MEENABEN KETANKUMAR MAKIM,JAMNAGAR vs. THE PR, CIT, JAMNAGAR, JAMNAGAR

आदेश आदेश/O R D E R आदेश आदेश

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the assessee against the order of the Learned Principle Commissioner of Income Tax, Jamnagar, dated 18/02/2019 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-16.

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4.1 Thus, the Ld. PCIT proposed the assessment order as erroneous in so far prejudicial to the interest of revenue on account of non-verification by issuing a show cause notice dated 29/08/2018, with a request to make reply by 11/07/2018. It was the contention of the assessee that all the necessary details were duly supplied during the assessment proceedings and thereafter the assessment was framed by the AO under section 143(3) of the Act. However, the Ld. PCIT was satisfied with the submission of the assesses. Accordingly, the Ld.

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PCIT held the order of the AO as erroneous in so far prejudicial to the interest of revenue by observing as under: 8.1. The main contention of the assessee is that the while completing the scrutiny the AO has called for various details as he deemed fit and after undertaking complete scrutiny and examination of records, completed the scrutiny assessment after proper application of mind. As per the assessee it is not a case where proper inquiries have not been conducted and that the order therefore cannot be revised u/s.263 of the I.T. Act. The assessee has also relied upon various case laws wherein it has been held that when the assessment has been completed after conducting of proper inquiries, then action u/s. 263 of the I. T. Act cannot be resorted. On perusal of the assessment records, it is found that in this case the AO issued notice u/s. 143(2) of I. T. Act on dated 19.09.2016. Further Notice u/s. 142(1) was issued on 20/01/2017 in which only primary question calling to furnish the copy of Return of Income, copy of statement of income. Audit report, list of bank accounts held and copy of bank statements held by the assessee. In compliance of such notice, the assessee herself has filed some details in the form of contract note, copies of lease deed and purchase deed etc. It may be mentioned that the case of the assessee was selected for complete scrutiny with the reason to verify "suspicious sale transaction in shares and exempt long term capital gains (penny stock)." During the year under review the assessee had shown long term capital gain of Rs.18,81,843/- on sale of 'Lifeline Drugs & Pharma Ltd and "TVS Motors” equity shares and which was claimed excempt u/s.10(38) of the Act in the return of income. It is found that the AO has not is found that the AO has not issued any specific queries on the issue on which the case was selected for the scrutiny. The AO has not conducted any inquiries from independent sources in respect of genuineness of purchase on the shares and sale of the shares and the resultant claim of exempt income of Rs.18,81,848/-. The AO has maintained order sheet for assessment file but nothing in respect of the main issue i.e. the reason for selection of case regarding to verify "suspicious sale transaction in shares and exempt long term capita! gains (penny stock)" is discussed or any inquiry in this regard has been made and placed on record. It is seen that notice u/s.!42(l) of I. T. Act was issued on 20/01/2017 calling for primary details only and further notice u/s,142{l} of I. T. Act was issued calling to furnish the copies of rent deeds. It is seen that no specific questionnaire has been issued by the AO relating to reason for selecting the case under CASS. In compliance of the above notices the assessee appear to file some documents at her own. However on which date these documents etc. were filed is also not ascertainable. The AO completed the assessment on 02.05.2017 on the basis of these documents suomoto filed by the assessee. It may be mentioned that the case was selected for scrutiny to examine the genuineness of the exempt income claim u/s. 10(38} of the I. T. Act. On verification of the submission dated 01/09/2018 made by the assessee, during proceedings u/s. 263 it is seen that the assessee had purchased 380 equity shares of "Lifeline Drugs & Pharma Ltd." at price of Rs.36.12 per share on 02/04/2013 and 3500 equity shares of TVS Motors at price of Rs.30.02/- per share on 05/09/2013. Thereafter 380 shares of Rs.10 each were split into 3800 shares of Rs.l each on 13/11/2013. Thereafter entire 3800 shares of "Lifeline Drugs & Pharma Ltd." were sold at price of Rs.267.94 per share on 11/12/2014 and 3500 shares of TVS Motors were sold at price of Rs.281.15 per share on 19/03/2015. On analyzing the above details, it is seen that price of the "Lifeline Drugs & Pharma Ltd." shares shot up from Rs.3.61 (considering per share the split of the shares) to Rs.267.94 and TVS Motors shares shot up from Rs.30.02 to Rs.281.15 per share within 20 months. This was the vital issue which was to be examined by the AO as to what were the basic reasons and economic circumstances of the company which justified such a huge

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increase in the share price. However the AO has not at all examined this issue and simply accepted the assessee's claim. Further it may also be mentioned that the assessee has claimed to have purchased the shares during F.Y. 2013-14 for Rs.1,18,811/-. However either during the assessment proceeding or during the proceedings u/s. 263 of the I. T. Act, the assessee has not explained the source of such payment. Even it is not known whether the purchase amount was paid in cash or through cheque. This will indicate that the AO while completing the assessment neither examined the genuineness of the purchase of the shares nor genuineness of the sale of the shares. The AO also did not examine the basic reasons which may have justified huge increase in the share price within a span of 20 months. Therefore prima facie it is a case where the AO has not conducted any genuine inquiries.

8.2. Further, on verification of ITS data, it is observed that during the year under review, the assessee had purchased two immovable properties, one for Rs.6 lakhs and second for Rs.9 lakhs, but purchase deed in respect of property worth of Rs. 9 lakhs was found on records and prima facie it appears that the ,' AO has neither called for the complete details of purchase of property nor the source of investment of \ above purchase has not been examined. In addition to the above, it is also observed that the assessee has ' shown interest income of Rs.3,07,515/- but no details of interest income has been called by the AO. On. perusal of the records, it is also seen that the assessee has claimed interest expenses of Rs.1,66,427/- against the house property income of Rs.1,92,000/-, but no evidence/details has been called for by the AO during the assessment. There is nothing on the records to suggest that proper verification and inquiries ' were made to come to logical conclusion as regards to the source of investment in the purchase of the | properties and the genuineness of the expenses claimed to earn income from house property. Therefore, j vide this office show cause notice dated 28-06-2018 for action u/s. 263, the assessee was requested to explain as to why the order passed by the AO u/s. 143(3} dated 02.05.2017 should not be revised u/s. 263 of the Act. The assessee preferred to remain silent on the above issues in his all written submission dated 04.09.2018, 04/10/2018 and 07/01/2019. It is fact that the assessee has purchased two properties during the year under consideration and the materials available on records is not enough to justify the source of investment made in the purchase of the immoveable properties as above. As regard to the claim of interest expenses of Rs.1,66,427/- out of the income from the house property, there is nothing on record to justify the expenditure incurred in relation to the income from house property. In view of the above, it is clearly apparent that there should have been better application of mind by the AO during the assessment proceedings and there should have been proper verification of the above discussed aspects in order to determining the correct taxable income. In the light of the above observations, it is clear that the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue.

8.3. This will indicate that the AO failed to make the relevant vital inquiries regarding as fact as to whether the assessee had really purchased the share, whether she had genuinely made the payment and whether the shares were genuinely transferred. The AO also did not verify during the course of assessment, whether the assessee at the time of purchase of shares was having such cash balance to prove the genuineness of source of payment. From the perusal of the case records of the assessee for the relevant assessment year, there is nothing on record to show that the AO has ever confronted the assessee on these issues and had the Assessing Officer examined all the above issues, he should have made some noting either in the order sheet or any kind of reference would have been made in the submissions made by the assessee.

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Therefore, it is not a case of inadequate inquiry but a clear cut case of of inquiry. lack of inquiry or verification at the relevant time by the AO would constitute prejudice to the interest of revenue and would involve error of fact and law which are vital to the issue on which the case was selected for scrutiny.

8.4 The assessee has also contended that after completion of the scrutiny assessment the AO has appended an office note, certifying that all necessary inquiries were completed on the issue on which the case was selected for the scrutiny. However such findings of the AO is absolutely false and incorrect and without any basis not evidenced from the assessment records.

8.5. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner In exercise of revisionary power. As an investigator, it is incumbent the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the 'erroneous' includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. In this case the AO has not conducted the critical enquiry and nothing is on record to show that any verification of details to establish the genuineness of the claim as made by the assessee has been carried out by the Assessing Officer. The order of the Assessing Officer is silent and the claims have been allowed without any inquiry, examination or independent verification from outside agencies.

8.6 The assessee has relied on various case laws in support of his contention that the assessee's case was not covered under the revisionary powers u/s. 263 of the I. T. Act. In this connection it is mentioned that the facts and circumstances of various case laws relied upon by the assessee are different with the facts of the assessee's case. As mentioned above in the assessee's case the AO while completing the assessment did not conduct such enquiries as were essential on the facts and circumstances of the case and therefore the order passed by the assessee was erroneous in as much as it was prejudicial to the interest of revenue. Therefore this is a case of absolute lack of inquiries by the AO and not a case of inadequate inquiries. Reliance is placed on the following case laws wherein it has been held that proceedings u/s. 263 can be justified where there is lack of inquiries on the part of the AO. i. CIT vs. Kamal Galani, 2018 ITL 1562(Gujarat).

ii. Deniel Merchants Pvt. Ltd. vs.ITO(Appeal No. 2396/2017) dated 29.11.2017(SC). iii. Malabar Industrial Co. Ltd. Vs CIT, 243 ITR 83 (SC). iv. Ramesh Kumar Vs. ITO, Wd-3, Hisar, ITA No. 1982/Del/2018 dated 25.01.2019 ITAT(Delhi Bench "F").

8.7. It may further be mentioned that with effect from 01/06/2015, Explanation 2 to the section 263(1) has been inserted which reads as under- Explanation 2- For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, it in the opinion of the Principal Commissioner of Commissioner: (a)The order is passed without making inquiries or verification which should have been made.

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(b) The order is passed allowing any relief without inquiring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119, or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdiction of High Court or Supreme Court in the case of the assessee or any other person.

8.8. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed without making inquiries or verification which should have been made by the AO. As discussed above, in this case the AO has not made any inquiries at all, even questionnaire has not been issued nor has order sheet been maintained. The AO failed to call for the necessary details regarding purchase and sale of shares, sources, etc. and verification of the genuineness of the transactions of shares with the respective stock exchanges and therefore the order passed by the assessee was erroneous in as much as prejudicial to the interest of revenue

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In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appeared that the resolution passed by the board of the appellant- company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss

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of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous was irresistible. Therefore, the High Court had rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified.

8.1 In view of the above, after considering the facts in totality, we do not find any infirmity in the order framed u/s 263 of the Act. Thus, we decline to interfere in the order of the Ld. PCIT. Hence, the ground of appeal of the assessee is dismissed.

Order pronounced in the Court on 19/05/2023 at Ahmedabad.

Sd/- Sd/- (T.R SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy)

Ahmedabad; Dated 19/05/2023 Manish